Economic Dark Matter

IT'S A COMMON-PLACE of political, investment and bar-room debate that
the Anglo-Saxon economies enjoyed a debt-fuelled consumer boom over the last
decade or so.

In fact, it's a given...the one sure thing any analysis builds on, whether
it's begging for votes, fund-management fees or a shared cab-ride home. The
US and UK piled more debt on household balance-sheets than any other nations
in history, forgetting to add a balancing item beyond the apparent value of
the roof over their heads.

Thing is, the data don't support it. Worse yet, they don't deny it either.
Anglo-Saxony took on a record volume of household debt, simply to keep household
spending growing on trend. Something ugly but hidden - economic dark matter
- forced consumers deep into hock just to keep pace during the early 21st century.

The UK, for instance, added 30 pence of new private debt for every £1
of output at the very top of the bubble.

Not merely 30p for every extra pound. (New debt to growth averaged 4:1 from
2000 to mid-2008). No, private debt-growth peaked at equivalent to 30% of GDP
full-stop, accelerating by more than one-sixth each year from the turn of the
decade.

Yet household consumption failed to leap higher in tandem, remaining "on trend" from
the previous four decades and growing in lock-step with total activity. The
extra credit and debt must have gone on funding something else entirely.

Across the Atlantic, the same story, albeit with different data.

Personal consumption, as a proportion of GDP, broke sharply higher in the
last years of last century. It stayed there too, equivalent to 70% of the annual
economy, despite flagging in terms of year-on-year growth - and despite increasing
in lock-step with GDP across the 10 years to end-2007.

Clearly something's wrong with the maths, but where it's broken the data won't
say. It didn't add up five years ago either, back when then-Bank of England
policy-maker Stephen
Nickel spotted the puzzle...only to dismiss it. Nickel noted the huge leap
in UK house prices in terms of income multiples (from the near-record four
times salary then, they had another three multiples to go before peaking),
but he guessed that "debt accumulation" by one family buying a home typically
meant "financial asset accumulation" for the seller, using the proceeds to
buy shares or bonds. Thus all was for the best in the best of all debt-driven
worlds. Net-net, we were borrowing ourselves richer.

Fixing the worst slump since the Thirties thus comes down, or so everyone
assumes, to either reversing a course that never took place...and forcing a
reduction in consumption that enables households to reduce debt...or reviving
a fresh (meaning first) surge in consumer spending with sub-zero interest
rates and tax-funded cash incentives.

The likely outcome, we guess here at BullionVault,
is both or neither. More urgent for investors and savers, let alone policy
pooh-bahs, is identifying quite what the historic burden of debt that households
now carry actually financed.

Formerly City correspondent for The Daily Reckoning in London and head of
editorial at the UK's leading financial advisory for private investors, Adrian
Ash is the head of research at BullionVault,
where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the
secure, low-cost gold and silver exchange for private investors. It enables
you to buy and sell professional-grade bullion at live prices online, storing
your physical property in market-accredited, non-bank vaults in London, New
York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
silver (US$129m) as their outright property. There is no minimum investment
and users can deal as little as one gram at a time. Each user's unique holding
is proven, each day, by the public reconciliation of client property with formal
bullion-market bar lists.

BullionVault is a
full member of professional trade body the London Bullion Market Association
(LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious
Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development
body the World Gold Council (www.gold.org)
joined with the internet and technology fund Augmentum Capital, which is backed
by the London listed Rothschild Investment Trust (RIT Capital Partners), in
making an $18.8 million (£12.5m) investment in the business.

Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.